When it comes time to invest in a new car, very few people are able to purchase a vehicle outright. This means, they’re left with no option but to look for car finance. If you’re looking to get a new car on finance, there’s a lot of factors to take into account. Your credit score will play a large role, not just in whether or not you’re able to get car finance, but also for how much interest you’ll need to pay. Here, you’ll discover everything you need to know about car finance and credit scores.
Specialist car finance
The most common type of credit used to purchase a new car these days, is specialist car finance. There are three different types on offer, including HP (Hire Purchase), PCP (Personal Contract Purchase) and PL (Personal Leasing).
You’ll still typically need a deposit for the car when you chose any of these plans and some of them mean you won’t actually own the car at the end of the term. This makes them a great choice for those who would prefer to change their model approximately every three years.
It’s worth noting that these plans do vary significantly between providers. Therefore, it’s always a good idea to read through the small print to ensure you know exactly what’s included. You should also shop around for the best prices as these too will differ.
Using a personal loan
Of course, you don’t have to go with a specialist car finance provider. It’s possible to buy a car using a personal loan. As long as you have a bank account from a company such as Think Money, you’ll be able to receive your loan which can then be used to purchase a car outright.
The benefit of this option is that the car will be yours. The repayments are often lower than specialist car finance too. However, this will depend entirely upon your credit score.
How does your credit rating affect car finance?
When seeking any type of car finance, your credit score will play a huge role in the amount of interest you’ll have to pay, as well as how likely it is that you’ll be accepted.
If you have a poor credit score, you can still get accepted, particular with specialist car finance. However, the repayments will be a lot higher than if you were to have a good score. This is because you’ll be considered as a higher risk borrower.
Overall, your credit score does impact your ability to get car finance. It’s best to try to improve your score as much as possible before seeking a finance option. This will ensure you don’t pay more than you need to on the monthly repayments.